Freight rates rise for oil refiners as insurers up cover on Hormuz route

P. Manoj MUMBAI | Updated on June 26, 2019 Published on June 26, 2019

The freight rates for an Arabian Gulf to India run for a modern Suezmaz tanker or a very large gas carrier (VLGC) have gone up by $150,000 to $300,000 per day on account of the additional war risk premium on the ship’s hull and machinery levied by underwriters.

Impact could be as high as $300,000 a day

India’s oil refiners sourcing crude from West Asia are facing freight increases of as much as $300,000 per day. This comes after global marine insurers imposed an additional war risk premium of 0.35-4 per cent of the value of the ship for every transit through the Strait of Hormuz — the world’s busiest oil shipping lane and the only channel for vessels to enter and exit the Persian Gulf — in the wake of the recent attacks on oil tankers.

The freight rates for an Arabian Gulf-to-India run for a modern Suezmaz tanker or a very large gas carrier (VLGC) have gone up by $150,000 to $300,000 per day because of the additional war risk premium on the ship’s hull and machinery levied by underwriters, said an executive with an Indian shipping company.

The extra premium for a modern very large crude carrier (VLCC) will be much more, and the freight rates will be higher to that extent, he added.

The additional premium is levied on ships by insurers for every transit through the Strait of Hormuz carrying crude oil for global refiners.

India imported 84 per cent of its crude requirement in FY19 and two of every three barrels were sourced from suppliers in West Asia, according to government data.

For a spot voyage, the ship-owner can choose to absorb the extra spend or pass it on to the customer, depending on the demand-and-supply scenario.

“Oil refiners have started asking ship-owners to quote an all-inclusive rate while finalising spot charters,” said an executive with another shipping firm. “Why should we absorb (the extra spend)? Besides, it’s a global impact,” he observed.

For a time-charter contract that is already running, the ship-owner will have to pay the extra premium and then get it reimbursed from the charterer.

Chevron war risk clause

“There is a Chevron war risk clause in every charter party, which says that any additional war risk premium during the currency of the voyage is to be borne by the charterer. At the time of chartering, it is on the ship-owner’s account, but during the currency of the voyage, the charterers are liable to pay any increase in premium,” he said.

Oil refiners are likely to reimburse the extra premium to ship-owners on submission of documentary evidence, an official with one of the state-run refiners said.

The freight rates for an Arabian Gulf-to-India run for a modern Suezmaz tanker have gone up by up to $300,000 a day


Published on June 26, 2019

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